Given the volatility and unpredictable nature of the stock markets, you might be wondering, “Is now the perfect time to open a new office?” The truth is, opening a new office can be an exciting and daunting task for any business owner, especially those in the dental industry. However, it can also offer a wealth of benefits that could make it a savvy investment. In today’s entry, I want to examine the pros and cons of opening a new office and discuss what you can do to ensure a successful launch.
Follow Along With The Financially Simple Podcast!
This week on The Financially Simple Podcast:
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(1:00) Why you might be considering opening a new office
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(3:10) The benefits of starting a new office from scratch (Pros)
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(7:39) The downside of opening a second location (Cons)
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(11:00) What can you do to make it successful?
Not Ready to Buy An Existing Practice or to Merge? Open a New Practice
If your business debts are paid and you’ve taken steps to secure your personal finances, you may find yourself in an interesting place. At this point, you likely have excess capital and want to grow your practice. But how? Your original location may already be at capacity, meaning that growing the location would require significant infrastructure investment. On the other hand, you might not want the headache of absorbing an acquisition and you haven’t found an attractive option for a merger. Still, you realize that reinvesting in your practice offers more control (and potentially a more significant return) than putting your cash into the current equity markets. So, is now the perfect time to open a new office? Let’s look at the pros and cons.
Should You Open a New Office? The Pros and Cons of Starting from Scratch
As is the case with most things, there are positives and negatives to opening a new office. Although this isn’t an exhaustive list, I’ve come up with enough of both to get you started. Let’s begin by looking at some of the pros.
Pros
1. Making the Business Your Own.
When you open a new office, you have the opportunity to create a space that is uniquely yours. From the floor plan and the color of the floor tiles to staffing and defining service values, you’re in control. This allows you to create a brand identity that is consistent across all of your locations.
2. You Can Handpick the Location.
When choosing a location and demographic, you’ll have many things to consider. Each option is a choice for your future. Therefore, you must take adequate time to determine which characteristics you want to focus on when deciding where your new office will be. Take into account things like population density, average household size, median age, median household income, households with private insurance, competition, etc. By choosing the right location, you can target the patient demographics you want to work with. This can help you attract the right patients and build a loyal patient base.
3. Taking Advantage of Economies of Scale.
Investopedia defines economies of scale as the cost advantages reaped by companies when production becomes efficient. In other words, you can lower costs by spreading them out over a larger number of goods and services. You can take advantage of economies of scale by purchasing supplies in bulk, or by eliminating redundancies in staffing and marketing. By utilizing economies of scale, you can lower your overhead costs and increase profitability.
4. Improved Brand Recognition.
Friends, opening a new office can introduce your brand to a new market, leading to more foot traffic, greater operational efficiency, and even increased revenue. In fact, a study by Zippia Research found that a consistent brand presentation (in advertising, logos, and even the aesthetic of your offices) can increase revenue by up to 33%. This is especially true when opening a new location, as you have the opportunity to create a consistent brand identity from the ground up.
Cons
1. Less Discretionary Time.
As a practice owner, opening a new office can demand extraordinary amounts of your time and energy. This can take away from the time you spend with your family or pursuing other interests. Folks, I know this from personal experience. Chances are, you’ve missed a few birthdays over the years. Owning a business is one of the most demanding jobs a person could have. However, with the right team in place, you can delegate some of the responsibilities and free up some of your time.
2. Potential for Failure.
Look, opening a new office comes with inherent risks, and there is always the potential for failure. As much as I’d like to tell you everything will just work itself out and be okay, reality tells a different story. According to the Small Business Administration, 20% of small businesses in the US fail within the first two years. This number increases to 45% after 5 years and 65% within ten years. While these numbers can be intimidating, they’re not insurmountable. With diligent preparation and planning, you can improve your odds of success.
3. Financial Risks.
Establishing a new office requires a substantial investment. According to recent data, the average cost of launching a dental practice falls within the range of $350K to $550K, depending on the location. Apart from the office space, you will also need to allocate funds for recruiting employees and buying equipment to operate the new practice. This expense could pose a significant financial risk, especially if you do not have a well-thought-out plan in place.
So, what can you do to overcome all the risks and give yourself a shot at success?
Proper Preparation Prevents Poor Performance
Believe it or not, opening a new office will be a lot like opening your first office. Of course, no two businesses are ever the same and they will each present unique struggles and opportunities, much like raising kids. However, preparing for the foreseeable challenges of opening a second location can help ensure that the process is as smooth as possible and increase the chances of success. Let’s look at some of the steps you can take to put yourself in the best position to succeed.
1. Conduct market research.
Before opening a second location, it’s important to conduct thorough market research to understand your new location’s demographics, competition, and local market trends. This information can help you identify potential challenges and opportunities allowing you to adjust your strategies accordingly.
2. Develop a detailed business plan.
Drafting a detailed business plan can help you prepare for the financial, operational, and management challenges that will inevitably come with your new office. The written plan should include a detailed budget, staffing requirements, marketing and sales strategies, as well as operational plans for the new location.
3. Build a strong management team.
Having a strong management team in place is critical for the success of a second location. You won’t be able to effectively manage both offices on your own. Therefore, you should identify and hire experienced managers who can oversee day-to-day operations at the new location and communicate effectively with staff at both locations.
4. Ensure brand consistency.
Your patients have come to expect a certain level of care and service. Likewise, you likely have—or should—a clear set of values that shape your practice’s culture. This should be reflected in your brand. If you haven’t clearly established a brand, it’s time. Once you have a clear and recognizable brand, don’t deviate from it! Maintaining brand consistency at both locations is critical for building a strong brand and a loyal patient base.
Wrapping Up…
Friends, if you’ve reached this stage in your practice, you have some decisions to make. You’ve already built one successful practice and taken measures to ensure that you’re diversified outside of your practice. At the same, you’re savvy enough to recognize that you need to make a move in order to maximize your biggest asset… your practice. Without buying an existing practice or entering into a merger, capacity constraints could make opening a new office your only remaining option. This is an exciting and stressful time in the life of an entrepreneur.
Look, life is hard, but it’s still good. Every day is a gift. Opening a new office can be frustrating, but it doesn’t have to be. You’ve already been through the startup phase with one office. By combining the battle-earned wisdom you’ve earned in your first office with the information outlined in this blog, you can make the decision to open a new office, at least, financially simple. Let’s go out and make it a great day!
If you find yourself in this position, don’t go it alone. Even the most seasoned entrepreneurs benefit from having advisors and coaches come alongside them. Reach out to our team to learn how we could help you through this next chapter in your practice!
